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Dunn and dusted at end of an era

There has been a changing of the guard at the top of one of Australia's oldest blue-blood institutions, AMP. Craig (Meller) has replaced Craig (Dunn) who after almost six years in the job can stake his claim to being a steady hand at the tiller.

There has been a changing of the guard at the top of one of Australia's oldest blue-blood institutions, AMP. Craig (Meller) has replaced Craig (Dunn) who after almost six years in the job can stake his claim to being a steady hand at the tiller.

While this sounds like a pretty staid legacy, in the context of the upheaval in the financial industry over this period, its not such a bad one.

The trouble for Dunn is that he will be best remembered by his last big announcement, which was the meltdown of the company's income protection business.

In the latest half to June 2013, operating earnings from this division fell 52 per cent - as the growing horde of white-collar unemployed cashed in on their income protection policies, and cost-of-living pressures sparked a large lapse on existing policies.

It is a tale that has been well documented by the company and, thanks to a profit downgrade in June, was well anticipated by the market.

One part of Meller's immediate remit will be to fix this part of the business, but it will not be his most important job.

Sure, he will need to provide the AMP with a steady and reliable hand. But he will also be charged with getting ahead of the innovation curve, in order to deal with the structural challenges that will inevitably hit the wealth management industry.

To say that AMP is in a superior position because if its size and market share is a head-in-the-sand stance.

A feature already seen among many industries that have undergone structural change is that the biggest player is not necessarily the survivor - in many cases being the incumbent breeds inertia, rather than innovation.

Dunn has shored up AMP's position in the wealth management area by acquiring the industry's number two, AXA, and the near completion of the integration of these businesses was the likely trigger for his departure. He cemented AMP has the number-one player, and now it's up to Meller to capitalise on it.

Meller's challenge is to capitalise on technological change to protect it from the inevitable low-cost newcomers.

The disrupters (with innovative new models) will emerge over time. Meller does not know what form their offerings will take. "If I knew that I would be a disrupter already," he says.

The backbone of the AMP is its army of personal finance advisers, one that under Dunn has grown to a legion. Can they be replaced by technology? To some extent the answer is yes.

Meller and Dunn are clear that the investment advice models of the future will, to some extent, tap into areas of customer service that can be accessed online rather than through face-to-face contact.

The banks have already set the pace in this area - many of their services are now accessed online. But their decision to retain a strong branch network is recognition that for many more complex services face-to-face contact is essential.

The financial services offered by businesses like AMP are more labour intensive.

AMP already talks about different levels of financial advice at differentiated prices, which can be delivered through use of better online systems.

It also highlights better use of (its proprietary) data to tailor offers to its superannuation customers.

But at the heart of the wealth management model is selling the benefit of putting aside and investing in the future - delaying gratification for the longer term.

The digital revolution provides instant gratification technology - financial services available from anywhere and at any time.

But these are not the issues that will occupy the minds of most investors or analysts, and certainly not yesterday's sharemarket traders.

The AMP share price reacted to the fact that the problems within the wealth protection business had eased a little since the company's June update, and the half-year profits were at the better end of the company's most recent guidance.

They will be happy with Dunn's performance on controlling costs and the promise to extract some productivity gains out to 2016.

But the structural challenges that have befallen the wealth protection division should be a portent for how structural or cyclical change can alter the earnings profile of financial services businesses.

While Dunn has ably dealt with the challenges thrown up by the global financial crisis - such as the equities market rout and capital adequacy changes - he and others were not prepared for repercussions on the wealth protection business from the massive wave of white-collar unemployment.

The revelation of the problems within wealth management not only marred his record, but focused attention on his tenure and defined his achievements as a solid hand and a talented cost cutter.

Meller will take the baton, but the next five or more years will (probably) not contain a financial crisis or the bedding down of a major acquisition like AXA.

It won't do to replace one Craig with another.

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